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Convicted tycoon’s return to Samsung brings sense of deja vu

When corporate ethics activist Kim Gun-ho heard that convicted tax evader Lee Kun-hee had returned as chairman of Samsung Electronics, he winced and thought: “Here we go again.”

And who could blame him?

In recent years, executives at some of South Korea’s top companies have been convicted of crimes such as accounting fraud, embezzlement and breach of duty.

Their sentences reduced, many have returned to their jobs. Some never left them.

“Most of the chairmen at the 10 biggest companies are convicts,” said Kim, a senior official at the Citizens’ Coalition for Economic Justice, which has lobbied for more accountability from South Korean companies. “They were prosecuted. They were given a suspended sentence, and then returned to work. It’s repetitive.”

Unlike many others, Lee is a two-time offender.

South Korea’s richest tycoon, who is considered a near demigod here for his Midas touch and shrewd business acumen, has led a charmed life of near criminal disasters followed by generous boardroom second chances.

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Lee, now 68, took the helm at the parent Samsung Group in 1987, and revenue for the world’s second-largest chip maker jumped tenfold to $174 billion by 2007, according to company data.

But there were bumps along the way.

Lee was pardoned in the 1990s after he was convicted of bribing two former presidents. Returning to Samsung Group’s helm, he ran into more legal trouble.

Last summer, Lee was given a suspended sentence for tax evasion, convicted of hiding about $4 billion in aides’ bank accounts. In December, he was pardoned by President Lee Myung-bak, who wanted him to help with South Korea’s bid to host the 2018 Winter Olympics. The president himself is a former corporate big shot, the onetime chief executive of Hyundai Construction.

So why do so many CEOs here have get-out-of-jail-free cards?

Many point to a hard-knuckled obsession with success that fueled the nation’s rise from the economic ruins of the Korean War to become a global financial powerhouse. Others point to a quiet small-town system of exchanged favors that pervades an intimate society in which most corporate and government leaders attend the same social clubs.

But the most important factor, many say, is the dominance of the mammoth corporate conglomerates, known as chaebols, in which the boardrooms are dominated by family members who are treated as near royalty.

The chaebols, analysts say, thrived on their ties to South Korea’s corrupt military governments in the 1960s, and several dozen large family-controlled corporate groups clung to power even after the country turned to democracy in 1987.

Analysts say they are not capable of policing themselves.

“My first reaction was, ‘Why did Samsung do this? It’s not reasonable,’ ” Kim Sang-jo, an economist at Hansung University and executive director of a civic group called Solidarity for Economic Reform, said of the firm’s move to reappoint Lee as chairman. “Why are they back to their old ways? They do not have the will to change or to make progress.”

South Korean presidents have always been unwilling to risk their economic programs by taking on the influence of the chaebols, which many here see as the driving force behind the nation’s economic engine, Kim Sang-jo said.

“If making economic progress in his legacy, what can be most helpful to the president?” he said. “No one questions the power of the chaebols. Presidents have no choice but to solicit their help.”

In exchange, the chairmen of these powerful monoliths become largely immune to the common man’s justice.

“Not only do chaebols dominate the economy, but they influence the judiciary and the government,” said Kim Sun-woong, executive director of the Center for Good Corporate Governance in Seoul. “They pull strings for the government and are free of control.”

Corporate trade groups hailed Lee’s return last week, expressing a familiar theme: What’s good for the chaebols is good for South Korea.

“Chairman Lee Kun-hee’s decision to return is desirable in a strategic way to maintain Samsung Electronics’ status as the world’s blue chip company,” says a statement from the Federation of Korean Industries. “And it is expected to have a positive impact on our economy.”

Lee isn’t alone on South Korea’s corporate pedestal.

In 2003, Chey Tae-won, chairman of SK Group, a telecommunications and energy company, was convicted of accounting fraud.

Four years later, Hyundai Motors Chairman Chung Mong-koo was convicted of embezzlement and breach of duty. He was given a suspended jail term after promising to donate $800 million to charity.

In addition, Kim Seung-youn, chairman of Hanwha Group, an explosives maker and financial company, was convicted in 2007 of assaulting several bar workers involved in a fight with his son.

All three men, who were pardoned by President Lee in 2008, remained at their boardroom posts throughout their legal troubles.

Some warn that such a hands-off policy could hurt foreign investment in South Korean companies.

“What concerns me is that returning to work after committing a criminal act is completely contrary to the global standards for ethical management,” said Kim of the Citizens’ Coalition. “Punishment of the rich is minor or even nonexistent in Korea.”

Despite Lee’s status as a twice-convicted criminal, Samsung believes he is the leader it needs amid the precarious economic situation.

“We have to start over,” Lee said in a statement. “We do not have time to hesitate. Let’s look forward and march ahead.”

john.glionna@latimes.com

Ju-min Park of The Times’ Seoul Bureau contributed to this report.


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